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If you’re a frequent traveler to destination resorts, a timeshare sales pitch is almost inevitable. In exchange for certain perks, such as free nights at the resort or free tickets to nearby attractions, you’ll be pushed to make an on-the-spot purchase. This special offer can be paid by cash, credit card or a personal loan from a lender working with the developer.
Getting a loan is one of the most popular options for financing a timeshare, but be sure you understand what you’re signing on for. The average cost of a new timeshare is $24,140, according to the American Resort Development Association (ARDA). Interest rates average a steep 17.9 percent, with loan terms that can last 10 years. Weigh the pros and cons of getting a timeshare loan before signing on the dotted line.
How to buy a timeshare using a personal loan
If you’re heading to a resort destination and think you may be involved in a timeshare presentation, do some homework in advance of your trip. This will give you concrete data to compare to financing options you may be presented with during the presentation.
- Check the interest rates for personal loans at several banks, credit unions and online lenders.
- Review the payment terms and see what the length of the loan would be and if there are prepayment penalties. Also verify if there are restrictions that would prevent you from using a personal loan.
- See if any of these lenders offer prequalification so you can know in advance the amount of financing you may be able to get.
- Learn what the application process is and how long it takes, as well as how soon you could receive the loan funds.
- At the presentation, see what financing options are being offered. If you think the personal loan rates and terms are a better choice for you, complete the application.
Benefits of timeshare loans
The primary benefit of using a loan from a developer to pay for a timeshare is convenience, says Lisa Ann Schreier, creator of The Timeshare Crusader. “Ninety-nine percent of new purchasers don’t come into the timeshare sales presentation thinking of buying anything, so those people certainly don’t walk in with another means of financing readily available.”
The convenience factor may be attractive if you’re hoping to secure any limited-time, special perks being offered by the developer. Going this route may also make sense if you have no other financing options available to you.
A timeshare loan gives you a fixed amount you’ll pay each month until the end of the loan. Unlike a credit card with a low introductory rate, with a timeshare loan, you don’t need to worry about tracking the time until an introductory period ends.
Drawbacks of timeshare loans
The most obvious drawback of timeshare loans is they come with steep interest rates — averaging 17.9 percent. But that’s only one of the issues to be aware of when considering a timeshare purchase.
Reselling is challenging
According to Steve Sexton of Sexton Advisory Group, lenders shy away from providing mortgages for timeshares due to low resale and valuation issues. “Because you’re just buying a fractional interest, the value typically does not go up over time and it is very hard to sell.”
Schreier adds that lenders don’t want to be stuck with the timeshare should the borrower default on the loan. And having a loan of any type, or outstanding balance on the timeshare, will significantly hinder your ability to sell it.
“If your outstanding balance on it is $10,000, you have to find someone to either take on the outstanding balance or pay $10,000,” Schreier says. “When a cursory search on the legitimate secondary market will turn up similar if not exact timeshares for $1,000 or less, the dilemma becomes apparent.”
Timeshares are prone to defaults
Since timeshares do not grow in value and are hard to resell, owners often simply walk away and default on their loans.
If you’re considering a timeshare purchase, experts say you should do it for the right reasons. Buy it to use and enjoy, not as a financial investment. A timeshare’s true value is it may allow you to reduce your accommodation costs over the long run. This could be possible by eliminating the need to stay at hotels.
What to look out for before getting a timeshare loan
If you choose to proceed with a timeshare loan, be sure you understand all the terms you’re agreeing to and look out for common pitfalls.
Fine print details
Consumers should double and triple check all math associated with a timeshare loan agreement, making certain the purchase price minus the down payment is the only thing being financed.
“You don’t want to find out, for instance, that you’re paying 16 percent interest on the maintenance fees,” Schreier says. “Do not sign anything unless and until you know exactly what you’re signing.”
Consumers who plan to find alternative financing down the road or paying off the developer’s timeshare loan ahead of time will want to be sure there are no prepayment penalties.
“Get that in writing,” Schreier says. “While it’s not common for those penalties to be assessed, it’s one of those gotchas that consumers usually fail to ask about and can sometimes add hundreds to the bottom line.”
Credit card financing offered by developers
Many developers have agreements with credit card companies and will push the benefits of using such credit cards.
“Some of these credit cards may sound good, such as 0 percent interest for six months, but then the actual APR might be higher than what the developer is charging,” Schreier says. “Don’t allow anyone to strong-arm you into opening a credit card, even under the guise of checking your credit.”
Other options to finance a timeshare
If you’re on the fence about using a timeshare loan from a developer, there are other ways to finance your purchase.
Home equity loan
One of the primary benefits of this approach is that home equity loans can be distributed in one lump sum and generally with much lower interest rates than a personal loan. Keep in mind a home equity loan is secured by your house, meaning you risk losing your home if you default.
Unsecured personal loan
If you have a strong credit score, an unsecured personal loan — a loan that does not require collateral — will often cost less over the long run than a developer’s loan. Personal loans tend to have competitive interest rates and borrower-friendly repayment terms.
In addition, you can typically be approved and borrow up to $100,000. Make sure the interest rate you’re quoted is less than that offered by the developer or sales agent.
Though using a credit card may not be an obvious choice, depending on the timeshare purchase price and the interest rate on the credit card, this is another funding possibility.
“If the timeshare purchase only requires laying out a few hundred to a few thousand dollars and you think it will only take a few months to pay it off, then use a credit card,” Sexton says. “Consider applying for a new card with a 0 percent promotional rate for six to 18 months. That way you won’t have to pay interest on your credit card balance.”